BIS Unveils Plan: Banks Required to Disclose Crypto Holdings

In a significant move, international regulators are introducing new measures that require banks to disclose their cryptocurrency holdings. The Basel Committee on Banking Supervision, responsible for establishing norms for traditional financial institutions, has emphasized the need for transparency in the wake of recent banking collapses, partly attributed to the rapid rise in crypto popularity.

Following a turbulent year marked by the collapse of major crypto exchange FTX and digitally-focused lenders Signature and Silicon Valley Banks, the Committee aims to curb contagion risks by urging banks to reveal their exposure to cryptocurrencies. The Committee had already stated that banks should maintain substantial capital reserves for their holdings in unbacked cryptocurrencies like Bitcoin and Ether, a move seen as potentially limiting for financial institutions.

To address these concerns, the Committee plans to release a consultation paper soon, outlining a comprehensive set of disclosure requirements related to banks’ crypto asset exposures. These requirements will complement the existing capital standards for digital assets, which were finalized in December. This signifies a shift in the Committee’s approach, as it hadn’t previously indicated the implementation of separate disclosure rules.

The Basel Committee, representing bank supervisors from 28 global jurisdictions, including the U.S., U.K., and European Union, has highlighted the need to monitor crypto-related norms continuously. The sudden surge in crypto popularity was identified as a key factor contributing to what the Committee termed the “most significant system-wide banking stress” since the 2008 financial crisis. Alongside crypto, the growth of non-bank financial intermediation and the advent of faster digital payment systems enabling quick withdrawals were also recognized as structural trends indirectly impacting traditional finance.

This move toward greater transparency aims to mitigate risks within the banking sector and enhance stability amidst the evolving landscape of digital assets. The impending release of the consultation paper underlines the Committee’s commitment to ensuring that financial institutions remain resilient in the face of emerging challenges.

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